The business community engaged in international commerce has had to find ways to cope with the high degree of legal uncertainty brought about by the crossing of numerous legal systems whose rules are expressed in a multitude of languages. This section discusses the business community's search to reduce the relevance of borders and attain greater uniformity for their contracts by various means, including basing their contracts on a-national law and reliance upon international commercial arbitration for the resolution of disputes that may arise. Methods employed to reduce the legal relevance of borders include inter alia :
(1.a) Use of standard contracts. (1.b) Reference to uniform principles and rules. (2.a) Choice of law of an acceptable state.12 (2.b) Choice of law of a state applying relevant uniform laws. (3) Choice of jurisdiction of an acceptable state.13 (4.a) Recourse to international commercial arbitration (ICA) which gives the greatest effect to the will of the parties, and provides the most extensive regime for enforcement. (4.b) In ICA excluding the application of the law of any sovereign state - through application instead of lex mercatoria or the like - the rules and principles of the international business community. (5) Use of self-regulating constitutional contracts that attempt to internalise all aspects of the parties' relationship, e.g. a long-term joint venture which may or may not be designed so as to result in the establishment of a separate company (Shell is such a company). (6) Large multinationals which are vertically and horizontally integrated in their production and provision of services across national boundaries are able to arrange their transactions internally within the corporate structure to a large extent avoiding the need for contract law and practice. Examples 5 and 6 are related to corporate structuring and are outside the scope of this paper.
The contract is a formal tool used by the business community to structure their relations, for which business practice and economics suggest the importance of a predictable and efficient underlying legal framework. However, any kind of legal regulation is a potential source of unpredictability. The transnational nature of international business provides an additional dimension to the difficulty of securing these requirements. The predictability of business relations is dependent on such aspects of “law” as the predictable interpretation and construction of legal texts, and the global recognition and enforcement of the dispute resolution judgement or award. Predictability and efficiency, which may be roughly equated to risk management and transaction costs, can be enhanced through the establishment and use of uniform “laws”, rules and principles, insofar as they result in reduced complexity. The “autonomous contract” in the three senses of the concept, if directed towards these ends by the business community suggests various means to secure these collective ends for the international business community. A more autonomous basis for contract is already given support by relevant international institutions (and states competing for international business) that take into account the needs of the business community, signalled by their choices (of law and legal framework).
2.1. The diminishing role of States
The paradigmatic concept of law and model of legal order is still that of the sovereign state.14 National systems, for all their shortcomings, tend to consistently apply themselves in a way that becomes publicly known to the relevant legal community, and allows for the predictable structuring of relations. However, members of the international business community are not well served by having to employ lawyers in each country in which they operate to provide specialist advice on similar areas of law15 and are in a constant search for ways around these obstacles. There are a number of ways in which this paradigm is being broken down in the sphere of international commerce. (a) At one level the concept of law of the nation state is eroded through action of the states themselves, by their implementation of uniform laws (both at an international and regional16 level). This may be the result of a state wishing to modernise its law, or recognising the limitations of a fractal international legal order and wishing to facilitate trade by simplifying their relationship to it. This is typically done by working through international institutions to achieve substantive uniformity in a particular area of commercial law. The result of this being that individual state law becomes less important. (b) With modern substantive uniform law, states are increasingly called upon to bind themselves and their judiciaries,17 to take account of the “international character” of the uniform law and “the need to promote uniformity in international trade.” In spite of the formidable problems associated with achieving uniformity of application of such uniform laws in the judiciaries of different states acting independently of each other, this obligation further internationalises state law. (c) Perhaps more importantly, the contract regulatory order represented by the laws and judiciary of the sovereign state, has a significant competitor that is arguably much better suited to the needs of transnational commerce, in the package represented by the many forms of international commercial arbitration. (d) States, in accepting the preference of the international business community, play a further essential role in giving support to the framework required by arbitration for it to function effectively. This in fact is carried further as competition exists on a state level as regards providing national arbitration laws that attract arbitration.18 (e) Most important and underlying this advance has been the granting of full effect to the “will” of contracting businessmen. Through freedom of contract in commercial affairs, states have provided parties with comprehensive autonomy in the organisation of their commercial affairs, with the exception of course of mandatory law. If state law does not suit the demands of the business community, they are free to go elsewhere. Businessmen can and do limit the role of the state in their contractual relations, seeking more globally applicable and uniform solutions. Responding to this demand there are various international institutions and service providers that are sensitive to the needs of the business community that increasingly target the contracting parties as representing an alternative means of unifying “law” and providing global solutions.
2.2. Solutions available within national law
2.2.1. Uniform law and its limitations
Selection of the law of a municipal system that applies uniform law is one important step that can be taken within the framework of municipal law, to make the contract more autonomous. The comments in this paper will be restricted to uniform substantive law, in the form of conventions that are to be adopted and applied in a uniform manner at an international level.19 Several other approaches to reaching various levels of uniformity exist.20 The model law approach for example, is based on ensuring that the law of different countries has a similar recognisable structure and essential elements. This is used where structural similarity is desirable but uniformity is not essential,21 or where the achievement of greater uniformity would prove difficult or impossible due to differences in national law. Also discussed in this paper are “restatements” of law, in the form of general principles of contract, with the UNIDROIT 22 Principles of International Commercial Contracts ,23 providing a prominent current example.
The CISG as a uniform law example
“Can clear, predictable international law be made from the divergent rules of dozens of domestic legal systems, rules built with local idioms for which there are no equivalent terms in other languages? The answer, unhappily, is no, but that is not the end of the story.”24
The greatest success for the unification of substantive commercial contract law to date, has been by UNCITRAL 25 with respect to the sale of goods in the Vienna Sales Convention ( CISG ).26 The CISG is currently applied by 49 states, commonly estimated as representing two-thirds of world trade. It may be regarded as the culmination of an effort in the field dating back to Ernst Rabel,27 followed by the Cornell Project,28 and connected most directly to the UNIDROIT inspired Hague Uniform Law for International Sales ( ULIS and ULF ),29 the main preparatory works behind the CISG .
The development and formulation of uniform law takes time, as does the formulation of uniform principles and rules. Unlike principles and rules, however, for uniform law to come into force and to be applicable, must go through a long process of ratification and accession by states. Even where states implement uniform law they frequently do so with various reservations. Success that is by no means guaranteed, takes time. For every uniform law that is a success, there are more failures. Even where there is widespread use of a uniform law, there are usually as many or more states that are exceptions. The implementation of uniform law is however, not the end of the story, as immediately the question of its uniform application arises. This is a fascinating subject that is of central importance to the development of autonomy, both within and outside the framework of municipal law.
“If UNCITRAL manages to become accepted by the whole world in any domain of the law or a set of rules, one believes that the problem of conflict of laws will be eliminated in this field, but this is not the case. A counter-effect enters into the picture. The uniform law from the very moment of its coming into operation starts to differ from itself. Every judge in every country is a sovereign interpreter of the text, and the judge became a judge by learning the system of law of his own country. And as the speediest bird is unable to fly out of itself, so the judge is unable to forget the law that he has learned. Divergent or contradictory interpretations, like the application of rules of different countries, lead to different judgements”30
We shall return to the problem of uniform application, under that heading and in the context of seeking means of achieving solutions to the problem of predictability. It should be noted here however, that uniform law does not cover all aspects of the relationship between the contracting parties, its scope is defined.31 Relevant applicable and mandatory law continues to apply.
2.2.2. Uniform rules and principles
We include in this category, rules and principles governing specific aspects of the contractual relationship, 32 negotiated standard contracts, and more comprehensive negotiated standard contracts drafted by international institutions33 and trade associations.34 In addition to these are the newcomers in the form of comprehensive general contract principles or contract law restatements that create an entire “legal” environment for contracting. Standard rules and principles provide greater flexibility, and have one clear advantage over uniform law in their being contractually agreed, and thereby, as Honnold put it “becoming effective by a stroke of the pen of the parties concerned.”35 Amongst the reasons for their use is the reduction of transaction cost, “parties often want to close contracts quickly, rather than hold up the transaction to negotiate solutions for every problem that might arise”,36 and they satisfy risk management criteria, being known, tried and tested, their effects being predictable. Furthermore uniform principles allow unification on matters that at the present stage of national and regional pluralism could not be achieved at a treaty level. Take for example the question of “interest”, which is a politically sensitive issue in some countries, though largely accepted by the business community, and compare the provision in the CISG with that of the UNIDROIT International Contract Principles .37 Such provisions are extremely useful to have for clarity, and may be varied if unacceptable to the contracting parties. With the UNIDROIT 38 and EU 39 Contract Principles , we have contract law restatements, that is, standard rules and principles of contract that create what is close to an autonomous (complete and independent) environment for contracting. This is so even where selected in conjunction with the law of a sovereign state whether in the context of litigation or arbitration. We shall return to consider the UNIDROIT International Contract Principles in the context of international commercial arbitration where it is possible to achieve even greater autonomy.
2.2.3. Situation specific standard contracts
Standard contracts may attempt to be autonomous in themselves, but seldom are, having a limited scope of regulation and depending for their ultimate interpretation and gap filling on the applicable “law”. This type of standard contract is more often than not drafted unilaterally by a single firm that represents a particular contractual interest. These are too diverse for much of a general nature to be extracted for our current purposes, being specific to the business that prepares them and to the type of goods or services for which they provide.
2.3. A transnational regulatory order for contracts
Within the traditional municipal order a limited degree of autonomy is available in contract. Autonomy is here used in the sense of reducing the relevance of specific national laws. This is achieved as discussed through: the selection of the law of a state that applies uniform law; the use of uniform rules and principles; and/or the use of negotiated standard contracts. There are problems however, with state's judiciaries' limited ability to disengage themselves from their traditional legal process, methods of legal reasoning, use of sources, and interpretation of uniform law, principles, rules and contracts. In addition to these there are problems associated with the enforcement of claims in other states world-wide as required for international commerce. These constraints have long represented a hindrance to the business community that has sought and found a preferable solution in international commercial arbitration. This may be further enhanced through the selection of a-national law as the governing law of the contract under arbitration, such as lex mercatoria . This a-national regulatory order is made possible by: (a) States' acceptance of freedom of contract ( odre public or public policy excepted). (b) Sanctity of contract embodied in the principle pacta sunt servanda. (c) Written contractual selection of dispute resolution by international commercial arbitration - ad hoc or institutional, usually under internationally accepted arbitration rules. (d) Enforcement: arbitration where necessary borrowing the state apparatus for law enforcement through the New York Convention on Recognition and Enforcement of Arbitral Awards 1958 . (e) Greater transnational effect is achieved through the exclusion of state law as governing the contract. Usually substituting the choice of general principles of law or lex mercatoria as governing the contract, or calling upon the arbitrators to act as amiable compositeur or ex aequo et bono . For increased predictability preferably through application of the UNIDROIT Principles .
2.3.1. International commercial arbitration (ICA)
It appears accepted that ICA has become the most prevalent means of dispute resolution in international commerce.40 This is hardly surprising as ICA is a cornerstone of the autonomous contract, and unlike litigation survives on its merits as a commercial service to provide for the needs of the trading community. As such ICA adheres more closely to the rules of the market economy, responding to those needs and catering for them more adequately. It has consequently been more dynamic than the national courts, in adjusting to the changing requirements of modern world trade.41 ICA, in taking its mandate from and giving effect to the will of the parties, provides them with greater flexibility and frees them from many of the limitations of municipal law. As examples of this, it seeks to give effect to the parties' agreement upon: the lex mercatoria as the law of the contract; the number of, and persons to be “adjudicators”; the language of proceedings; the procedural rules to be used, and; as to the finality of the decision. ICA through state support provided by the New York Convention (and where implemented by the UN Model Law on ICA) grants international commercial contracts an unparalleled enforcement apparatus world-wide.42 Much that has been essential to the success of ICA has been contributed by the activities of international organisations, both governmental43 and non-governmental,44 in providing the necessary legal infrastructure for arbitration in the form of international legal instruments and the dissemination of information about their application on a world-wide basis. There are multitudes of papers and publications dedicated to ICA.45
Note: Arbitration under the World Bank supported ICSID Rules 46 is of special importance for investment disputes involving a state which is a contracting party to the convention. ICSID arbitration (which is beyond the scope of this paper) is binding and enforceable without appeal even on the grounds of public policy, and has an even wider global range of enforceability than is available to ICA under the New York Convention .
2.3.2. Lex Mercatoria - and its essential link to arbitration
“The lex mercatoria has sufficient intellectual credentials to merit serious study, and yet is not so generally accepted as to escape the sceptical eye.”47
“Let me just note that in Europe the lex mercatoria is a fact. Arbitrators apply it and those courts which have faced awards applying it have accepted its application.”48
“Arbitrators entrusted with the task of settling a dispute in accordance with the intention of the parties and without recourse to any national legal system usually find themselves in a rather challenging situation. However, it is widely recognised as a matter of fact that arbitrators are not so reluctant to apply a-national and less definite systems of rules agreed upon by the parties as their colleagues from a state judiciary, who are more concerned with legal technicalities than with the desire to find a solution in a way contemplated by the parties at the time of conclusion of the contract.49 Obviously that can also explain the reason why arbitrators of differing nationalities who have applied the lex mercatoria in collegiate arbitral tribunals have not experienced great difficulties in reaching consensus.”50
The concept of lex mercatoria : of an autonomous set of rules and practices accepted by the international business community as regulating their transactions, has been actively promoted by a number of eminent authorities, mainly in continental Europe, and has continued to gain in stature over the years.51 The concept has developed particularly in conjunction with ICA, identified by Clive Schmitthoff of England and advanced by such authorities as Berthold Goldman of France and Pierre Lalive of Switzerland. Under current legal thinking, most national courts still require a contract to be governed by a national legal system,52 although on this front also lex mercatoria advances.53 ICA is not so constrained. It has been suggested that lex mercatoria was being used in as many as 5-10% of ICA cases.54 Ole Lando identified 1985 as the landmark year when the UNCITRAL Model Law on International Commercial Arbitration in Article 28(1) allowed for arbitral disputes to be determined “in accordance with the rules of law as chosen by the parties”.55 This clarification is welcome, though hardly revolutionary.56 It has long been accepted that arbitrators in executing their mandate derived from the will of the parties, if so requested, will settle the dispute on non legal grounds, in equity or on the merits, acting as amiable compositeur or ex aequo bono .57 Given that ICA is decided according to “the will” of the contracting parties, it was open earlier for an a-national (autonomous) decision based on lex mercatoria by specification of its application together with the rules of equity.58 This would have fallen under the accepted provisions of the earlier recognition and enforcement of arbitration rules. It appears to be accepted that when agreed by the parties in ICA, lex mercatoria may be applied as a separate legal frame independently of national law (mandatory law apart), and that such decisions will be enforced as valid by national courts.59 Equally, if so instructed, both in arbitration and in national courts, lex mercatoria may be called upon to play a gap filling function for the selected applicable national law. Lex mercatoria is a polycentric and integrative concept that has eluded precise definition, its precise nature, scope, content and application being vague, with wide latitude granted arbitrators.60 It has been suggested that “there can at most be no universal lex mercatoria , but merely a variety of lex mercatoria systems depending on sector or region.”61 It has been pointed out that lex mercatoria is a distinct concept from harmonisation and transnationalism.62 There is a convergence however, if one takes the perspective of the businesss community's needs and goals. The business community usually refers to lex mercatoria by what are regarded as loose synonyms, in such phrases as “internationally accepted principles of law governing contractual relations”, that more clearly indicate the intent behind their subscription to it.63
Some reservation must be expressed to their unconsidered use based on the uncertainty they represent. Amongst the items of which the lex mercatoria has grown to be comprised of,64 in a not necessarily hierarchical manner, are: (a) Customs and usages65 of international trade. (b) Relevant rules promulgated by international institutions on the area of law concerned - ICC - Incoterms , or the Uniform Customs and Practices for Documentary Credits . (c) The rules and principles common to all or most states engaged in international trade, or to those states which are connected to the contract. Apart from individual principles and rules for given circumstances, this includes uniform law such as UNCITRAL's CISG . The following quotation is of interest as regards general principles constituting Lex Mercatoria :
“Distilled from a vast literature, these general principles have been enumerated by Lord Justice Mustill as (in abridged form):66 (1) Pacta sunt servanda (contracts should be enforced according to their terms); (2) Rebus sic stantibus (substantially changed circumstances can entail a revision of contract terms); (3) Abus de droit (unfair and unconscionable contracts should not be enforced); (4) Culpa in contrahendo ; (5) Good faith [and fair dealing] ; (6) Bribes render a contract void or unenforceable; (7) A state may not evade its obligations by denying its own capacity to make an agreement to arbitrate; (8) The controlling interest of a group of companies is regarded as contracting on behalf of all members; (9) Parties should negotiate in good faith if unforeseen circumstances arise; (10) ”Gold clause“ agreements are valid and enforceable; (11) One party may be released from its obligations if there is a fundamental breach by the other; (12) No party can be allowed by its own act to bring about a non-performance of a condition precedent to its own obligation; (13) A tribunal is bound by the characterisation of the contract ascribed to it by the parties; (14) Damages for breach of contract are limited to the foreseeable consequences of the breach; (15) A party which has suffered a breach of contract must mitigate its losses; (16) Damages for non-delivery are calculated by reference to the market price of the goods and the price at which the buyer has purchased equivalent goods in replacement; (17) A party must act promptly to enforce its rights, lest lose them by waiver; (18) A debtor may set off his own cross-claim to diminish his liability to a creditor; (19) Contracts should be construed according to ut res magis valeat quam pereat ; (20) Failure to respond to a letter is regarded as evidence of assent to its terms.”67
(d) In the absence of the above the arbitrators will apply or establish the rule which appears to them to be best suited to the situation. (e) In ICA also relevant is the public policy of the country in which the award is likely to be requested.68 (f) Recently the definition of lex mercatoria has been greatly if controversially assisted, by comprehensive international rules made for this purpose by UNIDROIT and the Commission on European Contract Law.
2.3.3. Codified general contract principles as lex mercatoria
“The unification of law has ceased to be the prerogative of State legislators.... The hope of all of us who believe in the necessity of a flexible and pluralistic approach to the international unification of law, is that this equilibrium will be maintained in future.”69
“In offering the UNIDROIT Principles to the international legal and business communities, the Governing Council is fully conscious of the fact that the Principles , which do not involve the endorsement of governments, are not a binding instrument and that in consequence their acceptance will depend on their persuasive authority.”70
“The objective of the UNIDROIT Principles is to establish a balanced set of rules designated for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries in which they are to be applied. This goal is reflected both in their formal presentation and in the general policy underlying them.”71
The precise contents of “the general principles of law” and of lex mercatoria have always been vague and obscure, and presented the arbitrator who was to apply them with something of a challenge.72 This is changed by reference to the UNIDROIT International Contract Principles or European Contract Principles as the proper law of the contract.73 They provide a comprehensive set of rules to govern contractual relations and may be regarded as contract law restatements, although it has been pointed out that it is not for these principles to advance themselves as lex mercatoria .74 Given our global perspective, we shall confine ourselves to the UNIDROIT Principles , which were more international in their formulation and purpose.75
The arrival of the UNIDROIT International Contract Principles was particularly timely. It coincided with the successful attempt at reducing trade barriers represented by the World Trade Agreement , and the start of the general use of the Internet,76 which has allowed for the exponential growth of electronic commerce, and has further emphasised its transnational nature. This is all the more opportune bearing in mind that it takes years to prepare such a legal instrument. The UNIDROIT Principles were contemplated in 1971, a steering committee was formed composed of René David, Clive Schmitthoff and Tudor Popescu to make a study into the feasibility of such a project. Their first report in 1974 stressed the importance of the project laying down the broad outlines for its structure. In 1980 a special working group was constituted, “members of the Group, which included representatives of all the major legal and socio-economic systems of the world, were leading experts in the field of contract law and international trade law... all sitting ... in a personal capacity, and not expressing the views of their governments.”77 The first edition of the UNIDROIT Principles were finalised in 1994, 23 years after their first conception, and 14 years after work started on them in earnest. The UNIDROIT Principles constitute a system of principles and rules that govern most aspects of contractual relations. They were drawn up after consideration of different legal systems, but such influence has been deliberately obscured, with the intention and instruction that the UNIDROIT Principles should be interpreted according to an autonomous international standard. The only earlier set of rules to which reference is made within their commentary being the CISG .78 Nevertheless they have been met with certain reservation, especially as regards their relationship to lex mercatoria . It has been expressed on the one hand that:
“It is not up to the Principles to advance themselves as general principles of law or as lex mercatoria . As general principles of law the UNIDROIT text will only be accepted when the legal community and not merely the some twenty drafters of the UNIDROIT text, no matter how skilled and reputed these lawyers may be, has recognised that the UNIDROIT document states principles which underlie most legal systems and are generally accepted. In fact some UNIDROIT rules are certainly too specific to be perceived as such. The UNIDROIT standards will only be part of the lex mercatoria if they are recognised as such by the business community and its arbitrators. Since the UNIDROIT Principles have just been launched, it is too early to assess this possibility.”79
Or again that:
“No one doubts of course that the principles are the brainchild of learned lawyers who laboured independently. All the same is it not somewhat pretentious to claim that the principles represent the generally accepted principles of law?” ... “For the time being, the UNIDROIT Principles remain no more than a learned codification.”80
And it has been suggested that an indication of the traditional lex mercatoria is only firmly established by these codified principles where the three new systems represented by the CISG the UNIDROIT Principles and EU Principles converge.81 Be these objections as they may, the UNIDROIT (and EU ) Principles as contract law restatements cater to the needs of the business community that seeks an a-national or transnational law as the basis of its contracts. Where in the past they would have been forced to rely on the ethereal and nebulous lex mercatoria , the business community is finally provided with the opportunity to make use of such a “law” that is readily accessible, and has a clear and reasonably well defined content. As such the UNIDROIT Principles allow for more universal and uniform solutions. Their future success will depend on such factors as: (a) Suitability of their contract terms to the needs of the business community. (b) Their becoming widely known and understood. (c) Their predictability evidenced by a reasonable degree of consistency in the results of their application. (d) Recognition of their potential to reduce transaction costs. (e) Recognition of their being neutral as between different nations' interests (East, West; North, South). At the present time the UNIDROIT Principles have to overcome the deterrent fact that they are relatively new and untested. Their content, which needs to be known for their practical application, is as yet unfamiliar. Their suitability for various tasks has not yet been fully ascertained. And the workings of many discretionary powers granted the arbitrators have not yet been observed much in practice.
There are those within the business community who point out that “any pretension to interfere from the outside, through the imposition of uniform legislation, would be inopportune and in any case doomed to failure.”82 In this regard, the UNIDROIT Principles advancing themselves as a matter of choice for the parties do not constitute such an imposition.
The UNIDROIT Principles require study and understanding for their effective use in contracting. (a) The UNIDROIT Principles are broad in scope covering most aspects of contract and as such create a largely autonomous uniform legal environment for contracting. Exceptions are mandatory law, and some validity issues including capacity. These occur in a minority of disputes.83 (b) The UNIDROIT Principles adhere to the principle of freedom of contract, but contain mandatory provisions, that parties voluntarily choosing to use them cannot contract out of. (c) They are to be understood not on their own but in conjunction with their commentary. (d) The UNIDROIT Principles cover most aspects of contract including chapters on: formation, validity, interpretation, content, performance, and non-performance. The section on formation also covers pre-contractual negotiations. (e) The standards applied are meant to be international and may be different from similar domestic standards - e.g. good faith and fair dealings “in international trade.”84 (f) The UNIDROIT Principles contain separate provisions for the interpretation of the text of the UNIDROIT Principles themselves (Article 1.6), and those of the contract to which they apply (Chapter 4). (g) Most of the UNIDROIT Principles can be regarded as “default rules” that save the parties the time and cost “of negotiating and drafting by providing rules that they would probably have agreed upon had they taken the time to do so.”85 (h) An important consideration is that these rules are drafted specifically to take into account the needs of international trade, and as such contain provisions specifically directed at such matters as: determination of price; currency of payment; government permissions to perform; liquidated damages; interest rate on money due; reference back to original language text of a contract in case of doubt. (i) Unlikely to be familiar to those used to contract law models based on caveat subscriptor , are a number of protective principles, including those of good faith and fair dealing, and loyalty, which are discussed briefly later in this paper. (j) There are also rules which (in contrast with the regular acceptable default rules) serve rather the role of inducing the parties to negotiate more suitable terms for their transaction.86 (k) In yet other areas the rules are extremely general such as the hardship provision and other works on standard rules may provide more suitable solutions. 87 (l) The UNIDROIT Principles contain many discretions, that arise from their nature as principles, and use of standards within them (such as reasonable) that are without specific meaning, the content of which depends on the context in which they are applied. 88 (m) One might additionally observe that the UNIDROIT Principles can be used in conjunction with more specific rules and regulations. Of particular interest in the sale of goods, the UNIDROIT Principles are suitable for use (on the contracting parties' election89) together with the CISG to fill gaps in the provisions of the CISG . Provisions of the CISG would be given precedence over the UNIDROIT Principles under the accepted principle of specialia generalibus derogant .90 The CISG has many situations that are not provided for at all, or which are provided for in less detail than the UNIDROIT Principles . Examples include: the deliberately excluded validity (Article 4); the provision on interest (Article 78); impediment (Article 79), and; what many believe to be the inadequate coverage of battle of forms (Article 19).91
As to the suitability of The UNIDROIT Principles for complex international contracts, there are differing views. As pointed out forcefully by Vivian Gaymer:
“In relation to the complex type of contracts, I have to say that if the parties are content that the contract would be governed by a well-developed existing law which has been found to be satisfactory in relation to similar contracts in the past they would be unlikely even to consider using the Principles . The reasons are obvious. Parties like to know where they stand. They like to have access to an existing body of expert advice. The Principles , for the time being at least, suffer from the disadvantage of novelty. The lawyers seem to be resistant to change.”92
Paradoxically, where governments are involved (in complex agreements), they not infrequently find it necessary to resort to an a-national order to govern the contract. Kazuaki Sono before the promulgation of the UNIDROIT Principles writes:
“For complex transactions which were seldom heard of in the past, there is a tendency to have resort to ”the general principle of law“, lex mercatoria , or ”the principle of good faith and fair dealing“ particularly through arbitration clauses. During the Congress, I have been told personally from a reliable source that 5 to 10 per cent of the disputes which are submitted to arbitration now contain such clauses. The person who provided me with this information said ”only 5 to 10 per cent“, but to me it is an extremely significant percentage. Yet, the contents of these principles are still far from certain.”93
In such situations selection of the UNIDROIT Principles should provide a welcome increase in clarity. 94 Their use where states participate in international contracts is likely to generally boost confidence in their use for more complicated agreements also within the business community.
2.3.4. Protective principles as a necessary part of lex mercatoria
The virtues of freedom of contract are stressed in this paper in that they allow the international business community to structure their business relationships to suit their needs. The protective principles of good faith and fair dealing are of particular interest as in the UNIDROIT Principles they are mandatory and place an encumbrance on this freedom. Other protective principles such as loyalty also absent from some traditional contract systems are of similar interest. It has been pointed out however, that it is necessary to be mindful of the limitations of the benefits of absolute freedom of contract. The mandatory protective principles may be justified in that they (on the balance) reflect the collective needs of the international business community. It may be further and more positively argued that they are in fact beneficial and facilitate trade. (a) The protective principles help bring about confidence and foster relations between parties. They provide an assurance in the international arena where parties are less likely to know each other and may have more difficulty in finding out about each other. (b) They better reflect the focus of the international business community on a business relationship from which both sides seek to gain. (c) They result in wider acceptability of the principles within both governments and the business community in the pluralistic international community. These protective principles may be regarded as enabling the Principles to better represent the needs of “ the Commonwealth ” (here used to mean the world as a whole). (d) Good faith and fair dealing are fundamental underlying principles of international commercial relations. More generally, freedom of contract benefits from these protective priciples that need mandatory protection from contractual freedom to effectively serve their function. One might suggest that for most types of international contract based on a-national law, this is the minimum price of freedom of contract that should be insisted upon by mandatory international law, as the limitation which hinders the misuse by one party of unlimited contractual freedom. They appear to be an essential basis for acceptability of the autonomous contract (a-national contract, based on agreed rules and principles). As mandatory principles they become the default standard for the conduct of international business and as such may be looked upon as “common property.” Unless mandatory they suffer a fate somewhat analogous to that of “the tragedy of the commons.”95
Modern contract “law” models lay greater emphasis on the contract as an expression of co-operation between the parties.96 Both the UNIDROIT Contract Principles and the EU Contract Principles display these modern features. They include protective principles such as good faith and fair dealing, loyalty, and hardship97 that will not be as familiar to those used to the traditional contract model98 though they will be more familiar to others. These may be justified as co-operative rules and principles to which members of the international business community are prepared to subscribe in order to be able to assume the same of others. Being able to make these assumptions may facilitate trade, by allowing for greater trust between parties that are in less of a position to know of or find out about each other, than would be the case in a domestic transaction. Good faith and fair dealing, also identified by the English Lord Justice Mustill as part of “The” Lex Mercatoria ,99 is a pervasive and fundamental underlying principle common to both the UNIDROIT and EU Principles .100 The loyalty principle means that a party cannot take a completely singular view of its own interests to the exclusion of the other, having in some circumstances to take account of those of the other party.
Conversely, it is instructive to question the role in international commerce of the traditional contract represented by English contract reasoning and inherited by the British Commonwealth. Based on freedom of contract, pacta sunt servanda and caveat subscriptor . Although claimed to be neutral in making no judgement as to the contents of a contract, this claim is misleading. It is based on free market arguments that parties best understand their interests, and the contract arrived at will be an optimum compromise between their competing interests. It not being for an outsider to regulate or evaluate what a party of its own free will and volition has gained from electing to contract on those terms. This approach to contract is adversarial, based on the conflicting wills of the parties, achieving a meeting of minds. It imposes no duty of good faith and fair dealing or of loyalty (including the disclosure of material facts) upon the contracting parties to one another, who are to protect their own interests. The traditional model's failings are known in the domestic and international arena, frequently producing contractual relations that take advantage of the weaker, and less informed party.101 Information presents particular problems in international commerce.102 Adherents to the caveat subscriptor model, point to the fact that parties have conflicting interests, and should look out for their own interests. However, as compared with domestic transactions the contracting parties in international commerce are less likely to possess information about each other or of what material facts there may be within the other party's knowledge, and will find it more difficult (and costly) to acquire. And as Michael Trebilcock put it: “Even the most committed proponents of free markets and freedom of contract recognise that certain information preconditions must be met for a given exchange to possess Pareto superior qualities.”103 Furthermore the more information one already has, the less it costs to identify and to obtain any additional information that is required.104 This suggests that some parties will be in a much better position to determine and access what they need to know, a factor that should be reflected in the application of the principle.105 It is also increasingly accepted that it is not possible to fix long-term contracts once and for all, without future adjustments, as the traditional model would suggest. Also of interest are the claims of those who point out that this method of contracting is out of step with the reality of what businessmen do when entering an agreement. Ian Macneil106 suggests that contract has become an unrealistic abstraction, there being no solidarity except in legal remedies, with reciprocity absent except in the case of the discrete transaction. And it has been pointed out that business-persons at the time of contracting look not to their rights and remedies, but to the success of the business relationship.107 Modern contract models in placing greater emphasis on co-operation between the parties, and recognising a distinction between procedural and substantive fairness, go some way towards redressing these objections and arguably better reflect the ideology and needs of the international business community, notwithstanding such other issues as risk allocation.
The area represented by protective provisions generally, placing a limitation on freedom of contract, is a large and complicated one, which beyond these comments is outside the scope of this paper.108
Caveat: Contract law is not built on one model, but on several competing ones.109 Protective principles, though they may be widely suited for most types of contract, may be persuasively argued against for others. Protective principles may for example be generally suited for trade in goods and services or use in joint venture agreements, (which may benefit from their tendency to foster trust between international business contracting parties). However, they are less certain suit the needs of financial agreements and some specialist contract areas.
2.4. The autonomous contract - an a-national solution, a summary
The autonomous contract, in the sense of one based on an a-national, autonomous order, is possible both in form and substance where based on ICA and lex mercatoria , with the mandatory law of states excepted. The mandatory law exception referring principally to the laws of states in which performance is to be made or awards are to be enforced. This arrangement can be provided with greater predictability through application of the UNIDROIT Principles . This model provides the potential to reduce transaction cost through the possibility of adherence to a uniform acceptable standard that can be applied across borders with minimal concern as to the underlying municipal legal structure.110 This presupposes the functional and substantive predictability of the a-national “law” based contract. Functional predictability appears to have been provided, ICA being better catered for on a world-wide basis than the national legal order, having secured for itself an unparalleled regime for the recognition and enforcement of awards.111 Discussion might focus on how much could usefully be adopted in ICA from the ICSID approach to arbitration. The issue is much more complicated where substantive predictability is concerned. The simple answer would appear to be, to accept a degree of uncertainty, as being in the nature of legal reasoning. Parties should perhaps look more to a reasonable solution based on the application of the relevant rules and principles, as many parties do. With this in mind there is nothing to prevent the updating of the UNIDROIT Principles periodically in the light of experience of their use. The principals are analogous to the US Restatement of Contract Law , which is periodically updated, as are ICC's Incoterms and Uniform Customs and Practices and even the FIDIC Red Book on construction. Occasional updating would allow the UNIDROIT Principles to keep pace with developments and should not fall foul of the point raised by Jérôme Huet:
“However, if the UNIDROIT Principles were to be modified, corrected or improved they might also finally be rejected. This is because, even if one believes in the merits of ”soft law“ which is often more effective than written law, it remains that any law must be known and accepted. There must be sufficient time to get used to it. In other words it must be reasonably stable, and not be a 'changing law'”.112
The commentaries could be updated with greater frequency (than the black letter text of the UNIDROIT Principles ) in the light of experience. So doing should allow for adjustments in the text that assist in ensuring the more uniform application of the principles. The question however remains as to how such predictability might be improved for an a-national legal order.
12. Criteria for selection might include: familiarity; application of uniform law; neutrality; reputation; language; and convenience.
13. Similar criteria to choice of law in addition to which include: appropriate enforcement treaties; location.
14. E.g. Thomas Wilhelmsson, Legal Integration as Disintegration of National Law in Legal Polycentricity - Consequences of Pluralism in Law (1995) pp. 127-147 on p. 128.
15. E.g. arbitration law (different arbitration statutes), electronic commerce (the validity of electronic documents and signatures), or sale of goods law (England and Japan do not apply the CISG ) for example. Also see comment by Charles Brower, in the arbitration panel, Are International Institutions Doing Their Job? - The American Society of International Law, Proceedings of the 90th Annual Meeting, 1996 (Washington D.C. 1996) p. 249.
24. John Honnold, Goals of unification - Process and value of the unification of commercial law: lessons for the future drawn from the past 25 years (1992) in 25th UNCITRAL Congress , pp. 11-13, p. 11.
26. United Nations Convention On Contracts For The International Sale Of Goods (1980) . See Honnold, Uniform Law for International Sales, Under the 1980 United Nations Convention (Philadelphia, 1991); Fritz Enderlein and Dietrich Maskow, International Sales Law, United Nations Convention on Contracts for the International Sale of Good... (1992); Kritzer, International Contract Manual: Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1994) and the CISG W3 Database , Institute of International Commercial Law, Pace University School of Law http://www.cisg.law.pace.edu/ For some general links http://itl.irv.uit.no/trade_law/nav/sales.html
27. Ernst Rabel, Das Recht des Warenkaufs Bd. I&II (Berlin, 1936-1958). Two volume study on sales law.
28. Cornell Project on Formation of Contracts 1968 - Rudolf Schlesinger, Formation of Contracts. A study of the Common Core of Legal Systems , 2 vols. (New York, London 1968). Arthur von Mehren (ed.), International Encyclopedia of Comparative Law - Konrad Zweigert, including an agenda for national reports and general reports on various issues of contract law from formation to termination. For more information see Erich Schanze, New Directions in Business Research in Børge Dahl & Ruth Nielsen (ed.), New Directions in Contract Research (Copenhagen, 1996) pp. 61-90, on p. 61.
29. Uniform Law on the Formation of Contracts for the International Sale of Goods ( ULF ) and the Convention relating to a Uniform Law on the International Sale of Goods ( ULIS ) The Hague, 1964.
30. László Réczei, Process and value of the unification of commercial law: lessons for the future drawn from the past 25 years (1992) in 25th UNCITRAL Congress , pp. 5-7, on p. 6.
31. The CISG for example covers international sale of goods of specific types not those listed under Article 2; and specifically excludes its application to factors that vitiate a contract and the passing of property under Article 4.
32. E.g. ICC's Incoterms (1990) and contract clauses on Hardship and Force Majeure , and recently completed model for various CISG transactions.
33. Such as the European Council for Europe, General Conditions for the Supply of Plant and Machinery for Export (Form No. 574) (UN - ECE, 1955); The International Federation of (independent) Consulting Engineers, FIDIC Red Book on Construction (1996); Works of the European trade association Orgalime .
34. Such as the Grain and Feed Trade Association - GAFTA
40. Alexander Komarov Remarks on the Applications of the UNIDROIT Principles of International Commercial Contracts in International Commercial Arbitration (1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 157-166 on p. 157; Stewart Hancock A Uniform Commercial Code for International Sales? We Have it Now in New York State Bar Journal (January, 1995) quoting oral statement by Werner Melis to the effect that practically all international commercial disputes are settled by arbitration and not before state courts. Also see comments by Yasuhei Taniguchi, The Changing Attitude to International Commercial Dispute Settlement in Asia in Arbitration and Dispute Resolution Law Journal (London, 1997) pp. 67-77 at pp. 72-73.
41. Dispute resolution is a service industry - with many competing arbitration entities, both institutional and freelance, it is sensitive to its market. An arbitration tribunal's mandate is determined by the “will” of the contracting parties, this extends to the methods and “law” employed by it in dispute resolution. Competition exists also on a national level as regards national arbitration laws to attract ICA, see Park (Hague, 1995).
42. Attained through state support of the New York Convention 1958 (108 states contracting states) said to be honoured/ effective in 98 per cent of cases, see Albert Jan Van Den Berg, Some practical questions concerning the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1992) in 25th UNCITRAL Congress pp. 212-220 at p. 213. Also through the subsequent UN Model Law on Arbitration 1985 . In the important but less generic area of investment disputes were a contracting state is a party to the contract, the ICSID Arbitration Rules have even wider and further reaching effect.
44. Such as the ICC's International Court of Arbitration ; LCIA - London Court of International Arbitration ; AAA - American Arbitration Association .
45. For a brief overview see Sir Michael Kerr, Concord and Conflict in International Arbitration , in Arbitration International (London, LCIA, 1997) Vol. 13 pp. 121-143.
46. See Allan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (London, 1991) pp. 47-49; and Esa Paasivirta, Participation of States in International Contracts (Helsinki, 1990).
47. The Rt. Hon. Lord Justice Mustill, The New Lex Mercatoria: The First Twenty-five Years in Maarten Bos and Ian Brownlie, Liber Amicorum for the Rt. Hon. Lord Wilberforce, Clarendon Press (Oxford, 1987) pp.149-183.
48. See Ole Lando, The Law Applicable to the Merits of the Dispute , in Julian Lew (ed.) Contemporary Problems in International Arbitration (1987) pp. 101-112 on p. 104.
49. W. Laurence Craig, William W. Park, Jan Paulsson, International Chamber of Commerce Arbitration (New York, looseleaf updated, 2nd ed.) p. 640.
50. Lando, The lex mercatoria in International Commercial Arbitration , 34 ICLQ (1985) p. 753. as cited by Komarov (1995) pp. 157-166 on p. 161.
51. Discussions and examples of lex mercatoria are to be found in: Berthold Goldman, Frontières du droit et lex mercatoria , Archives de philosophie du droit (Paris 1964); La lex mercatoria dans les contrats et l'arbitrage internationaux: réalité et perspectives , 106 Culnet Journal du droit international (1979) p. 475; Etudes offèrtes à Berthold Goldman (Paris 1982) contributions by Battifol, Kahn, von Mehren, Rigaux, Weil; Cremades and Pehn, The New Lex Mercatoria and the Harmonisation of the Laws of International Commercial Transactions 3 Boston Univ Intl LJ 317 (1984); The applicable Law: General Principles of Law - the Lex Mercatoria in J. Lew (ed.), Contemporary Problems in International Arbitration (1986) p. 113; Lex Mercatoria in Forum Internationale, No.3 (Nov. 1983); Pierre Lalive of Switzerland, Transnational (or Truly International) Public Policy and International Arbitration ; Mustill, The New Lex Mercatoria: The First Twenty-five Years , (Oxford, 1987) pp.149-183; E. Gaillard (ed.), Transnational Rules in International Commercial Arbitration (Paris, 1993); Lando, Lex mercatoria 1985-1996 in Festskrift till Stig Strömholm , Vol. II p. 567-584 (Götenborg, 1997). Also Clive Schmitthoff, Nature and Evolution of the Transnational Law of Commercial Transactions in the Transnational law of International Commercial Transactions in Studies in Transnational Economic Law, Vol. 2 (1982) pp. 23-24. See also the UNIDROIT Principles of International Commercial Contracts 1994 and the Principles Of European Contract Law 1998. .
52. See Himlar Raeschke-Kessler, Should an Arbitrator in an International Arbitration Procedure apply the UNIDROIT Principles? (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 167-177 on p. 169 “It is no secret that the prevailing opinion among jurists in some countries, like mine, is plainly adverse towards an uncodified lex mercatoria as an independent body of transnational law” and discussion by Ulrich Drobnig, The Use of the UNIDROIT Principles by National and Supranational Courts (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 223-229 on p. 226-227.
53. The Inter American Convention on the Law Applicable to International Contracts 1994 invites state courts to apply lex mercatoria , Article 10. This is done in addition to the application of state law. In the absence of its selection by the parties the state with the closest ties, Article 9(1). Significantly, Article 9(2) provides that the court also take into account the general principles of international commercial law recognised by international organisations. See Lando (1997) pp. 567-584.
54. Kazuaki Sono, The Changing Role of UNCITRAL within The Future Role of UNCITRAL (1992) in 25th UNCITRAL Congress , pp. 249-252, on p. 250. Statement made prior to the UNIDROIT Principles , a significant figure as pinning down the exact content and effect of use of lex mercatoria is far from certain.
55. Lando (1997) p. 575. See also UNIDROIT Principles , Preamble 4 a. Also Arthur Hartkamp, The Use of UNIDROIT Principles of International Commercial Contracts by National and Supranational Courts (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 253-260 on p. 255, notes that “there is a growing tendency to permit them to choose 'rules of law' other than national laws on which the arbitrators may base their decisions”.
56. Innovative and new are the (“Lando” and “Bonell”) codifications of contract principles “lex mercatoria” discussed in the following section. Though these may be regarded as being inspired by the US Restatement of Contract Law .
57. As indicated e.g. by the European Arbitration Convention 1961 , UNCITRAL Arbitration Rules 1975 , UNCITRAL Model Law 1985 .
58. Komarov (1995) on p. 163; Hans Van Houtte, The UNIDROIT Principles of International Commercial Contracts and International Commercial Arbitration: Their Reciprocal Relevance (A:1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 181-195 on p. 183.
59. There is no dissent on this from the correspondents of various nationalities in UNIDROIT Principles: A New Lex Mercatoria? E.g. Michael Furmston in The UNIDROIT Principles in International Commercial Arbitration (1995) in UNIDROIT Principles: A New Lex Mercatoria? , pp. 199-208 on p. 202; Raeschke-Kessler (1995) p. 170. See also UNIDROIT Principles , Preamble 4 a. See also Van Houtte (A:1995) p. 183. Apart from the UNCITRAL Model Law on International Commercial Arbitration (Article 28) specific provision permitting the selection of “rules of law” (as opposed merely to “the law”) is provided in the new Arbitration Rules of both the ICC (Article 17) and LCIA (Article 22(2)), both effective from 1 January 1998.
60. See comment by Van Houtte, International Trade Law (London, 1995) p. 28-29 and p. 399 suggests that lex mercatoria is too vague and imprecise to be “self-sufficient”. See the next section of this paper on “general contract principles as lex mercatoria .”
61. Van Houtte (London, 1995) p. 28. Given the uncertainty as to its precise scope and application he also suggests that it is safer to apply a given system of state law, Van Houtte (London, 1995) p. 412 and p. 399.
65. Trade usages are actual practices of the relevant business community, the existence of which must be established and if necessary proven, e.g. by expert witnesses. The trade usage is not a source of law.
72. As pointed out, their general nature, and the wide latitude granted arbitrators to determine the case, has led to some reservation as to the general suitability of their use, see Van Houtte, id. p. 412 and p. 399.
73. Whether so instructed specifically by the parties, or referred to as suggested by the Preamble of the UNIDROIT Principles 1994 . Comp. Article 1.101 - Application of the Principles of the European Principles, European Principles 1998 .
74. The most constraining suggestion being that it is only when the UNIDROIT Principles 1994 and the EU Principles 1998 converge, together with the CISG that there is a clear indication that they represent the Lex Mercatoria , see Raeschke-Kessler (1995) on p. 174.
75. Bonell, The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purpose? in UNIDROIT Uniform Law Review (Rome, 1996) pp. 229-246 at pp. 242-243; Lando (1997) pp. 567-584 where he states “The UNIDROIT Principles are for the World ... The PECL [Principles of European Contract Law] are for the European Union” on p. 572.
78. Bonell, The UNIDROIT principles of International commercial contracts: Why? What? How? in Børge Dahl & Ruth Nielsen (ed.), (1996) pp. 91-98 on p. 93 and in id. (1997) on p. 231, comments on sources of inspiration mentioning diverse sources including (articles combined) the United States Uniform Commercial Code and the Restatement (Second) of the law of Contracts , the drafts of the Dutch Civil Code 1992 , the Civil Code of Quebec 1994 , also the Foreign Economic Contract Law of the Peoples Republic of China 1985 , and the Algerian Civil Code of 1975 . The international instrument referred to is the CISG . Also to non-legislative instruments such as Incoterms, the UCP, FIDIC Red book, and various works by UNCITRAL .
79. Van Houtte, The UNIDROIT Principles as a Guide to Drafting Contracts (B:1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 115-125 on p. 118.
80. Jérôme Huet, Synthesis (1995) in UNIDROIT Principles: A New Lex Mercatoria? pp. 273-281 on p. 278 and p. 281.
82. J. Carver, Uniform law and its impact on business circles: the experience of the legal profession , in UNIDROIT (ed.), International Uniform Law in Practice (N.Y., 1988) p. 411. see also Bonell (1992) p. 39.
83. Honnold, Documentary History of the Uniform Law for International Sales (1989) para. 19 on p. 256.
84. Article 1.7, Comment 2. Also see Van Houtte (A:1995), p. 186.
85. See Allan Farnsworth, An American View to the Principles as a Guide to Drafting Contracts in UNIDROIT Principles: A New Lex Mercatoria? pp. 85-92 on p. 87.
86. Farnsworth id. as an example points out Article 6.1.4(2) does not reflect commercial practice.
87. E.g. the ICC's Force Majeure and Hardship clauses .
89. Also consider present and future possibilities for such use of The Principles under CISG articles 8 and 9.
90. Special principles have precedence over general ones. See Huet, Synthesis (1995) p. 277.
91. Drobnig, id. p. 228, comment that the CISG precludes recourse to general principles of contract law in Article 7. This does not refer to the situation where parties determine that the UNIDROIT Principles should do so, see CISG Article 6.
92. Vivien Gaymer, The UNIDROIT Principles as a Guide for Drafting Contracts: A View from an International Commercial Lawyer , in UNIDROIT Principles: A New Lex Mercatoria? pp. 97-102 on p. 100.
94. Furmston (1995) p. 202, provides the compelling examples of two such agreements involving (i) the construction and (ii) the operation of the Channel Tunnel by Anglo-French consortiums. Both agreed upon disputes being “governed by those Principles of English and French contract law which are common and, if were no relevant common principles, by general principles of international commercial law.” Dispute resolution to be by ICC arbitration in Brussels.
95. Special problem regarding common/shared resources discussed by Garrett Hardin in Science (1968) 162 pp. 1243-1248. For short discussion and summary see Trebilcock, (1993) p. 13-15.
96. Hugh Collins, The Law of Contract (London, 1986) p. 160; Lars Erik Taxell, Avtalsrättens normer (Turku, 1987) p. 11; cited by Wilhelmsson, Questions for a Critical Contract Law - and a Contradictory Answer: Contract as Social Cooperation in Wilhelmsson (ed.), Perspectives of Critical Contract Law (1993) pp. 9-52 on p. 20.
97. There are other protective provisions in the form of: hardship (Chapter 6, Section 2); surprising terms (2.20); duty of confidentiality (2.16); and negotiation in bad faith (2.15). The principles also have specific provisions on: fraud (3.8); threat (3.9) gross disparity (3.10); and mistake (3.4, 3.5).
98. Gaymer (1995) p. 97 states “I particularly noted Article 1.7, which requires each party to act in accordance with good faith and fair dealing. This is not a general principle of English contract law, nor can it be readily achieved under that law and I am interested to learn more about its perceived application and benefits.” The US has come further than England with the development of the doctrine of unconscionability, and in basing the Uniform Commercial Code on the principle of good faith, which is hailed as its “single most important concept” and as “the foundation on which the [UCC] was drafted”, citations to Dore and DeFranco from Albert Kritzer, International Contract Manual: Guides to Practical Applications of the CISG (looseleaf 1994) p. 74. See also the Official UCC Commentary , Section 1-203.
100. UNIDROIT Contract Principles , General provisions - Article 1.7 Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this liability. EU Contract Principles , General Obligations - Article 1.201 (ex art. 1.106) - Good faith and fair dealing: “(1) Each party must act in accordance with good faith and fair dealing. (2) The parties may not exclude or limit this duty.” Good faith and fair dealing is also to be found in several national contract law systems, if not the English and “American”. Generally see Lando, Each Contracting Party Must Act In Accordance with Good Faith and Fair Dealing in Festskrift til Jan Ramberg (Stockholm, 1997) pp. 345-361.
101. Roger Brownsword, Towards a Rational Law of Contract in Wilhelmsson (ed.), Perspectives of Critical Contract Law (1993) pp. 241-272 on p. 241. Furmston (1995) on p. 201 notes: “It is recognised that even between commercial parties there may be stronger and weaker parties” in discussing Article 3.10 of the UNIDROIT Principles .
102. Apart from the more straightforward cases of different types of misrepresentation.
103. Trebilcock, (1993) p. 102, followed by a quotation of Milton Friedman, from Capitalism and Freedom (1962) p. 13.
104. Trebilcock, (1993) p. 102, note quoted passage of Kim Lane Scheppele, Legal Secrets: Equality and Efficiency in the Common Law (1988) p. 25.
105. On the loyalty principle generally see L.E. Taxell, Avtalsträtt (Stockholm, 1997). For a critical opinion on the principle of loyalty see Ernst Nordtveit, Partnerskap ved utveksling av ytingar. Realitet eller illusjon in Lov og Rett (1996) p. 337.
106. Ian Macneil, Barriers to the Idea of Relational Contracts , in F. Nicklisch (ed.), Der komplexe Langzeitvertrag (Heidelberg, 1987) 31-49, at 35.
107. Stewart Macaulay, Non-Contractual Relations in Business a Preliminary Study , in American Sociological Review (1963) pp. 55-67 on p. 61.
108. Writing on EC law Hans-W. Micklitz, Principles of Justice in Private Law within the European Union pp. 259-258 at pp. 284.290, discusses the concept of “legitimate expectations” as having the potential to cover similar ground in a more constructive manner as being as yet without national connotations it may be easier to achieve/develop an internationally uniform definition and interpretation.
109. Wilhelmsson, Legal Polycentricity: Consequences of Pluralism in Law (1995) pp.127-147 on p. 131.
110. Secured as required by relevant conditions precedent and contractual guarantee.
111. Under the New York Convention 1958 , UNCITRAL Model Law on Arbitration 1985 and arbitration laws that have been influenced by it.